Retail Market: Competition Is Just Beginning

9:34:16 AM | 1/8/2019

Ms. Do Thi Thu Hang, Director of Research at Savills Hanoi, revealed some remarks on retail property operations and stories behind the competitive rivalry among retailers in the interview granted to Vietnam Business Forum Magazine. Huong Ly reports.

What do you think about Vietnam's retail growth in the first six months and its market prospects?

According to the latest research by Savills Vietnam, the retail space supply has now reached over 1.5 million square meters in Hanoi, 14% more than a year ago. In the past two years, commercial centers have continuously increased. New projects have been launched in areas that previously had seriously lacked retail space. The west region of Hanoi is an example. In Ho Chi Minh City, the total supply of retail space reached about 1.4 million employees, up 13% over the second quarter of 2018.

The market has witnessed a strong growth of modern retail models such as convenience stores, supermarkets and commercial centers instead of traditional models like markets and department stores.

Fast-growing and successful domestic retailers included Vingroup and Saigon Co-op. The retail market also saw the presence and disappearance of many retailers. Currently, some major brands have strong development plans and strategies like Aeon, Lotte, CJ and Emart of South Korea.

In the last six months of the year, the market prospect is a positive picture of development in many aspects: Retail space and project scale. Retailing is now being integrated into real estate and housing project chains as an integral part of serving residents and tourists.

What are weaknesses and strengths of Vietnam's retail market?

The strength of Vietnam's retail market is plentiful. The big population scale, fast urbanization in Hanoi and Ho Chi Minh City and rising incomes result in huge consumer demands. Besides, consumer confidence has helped boost entertainment and shopping demands of Vietnamese people. Compared with other markets in the region, Hanoi and Ho Chi Minh City currently have a low ratio of retail space to people, indicating there is huge room for retail space development. The market is now a favorable development environment of modern retail models, with convenience advantages and increasingly integrated strengths of traditional models, to bring in a destination rather than just a shopping experience. Furthermore, another advantage for investors is local authorities are welcoming and facilitating retailers. At the back of fierce competition and elimination, the market is now a professional playground for those that really have the capacity of development and success.

Meanwhile, its existing weaknesses consist of no clear master plans to introduce retail spaces for big developers to create momentum for change of investment landscape and shopping habits in some localities and areas where planning is passive. High land cost in major cities which require a lot of initial investment and need longer time for investment recovery than other real estate products such as housing. Last but not least, the Vietnamese retail market has not really held advantages in competing with other markets in high-class products because the share of buyers of these products is small and they are willing to buy high-end products abroad.

Vietnam’s retail market has witnessed severe extermination against many well-known names to leave the market such as Tran Anh, Shop & Go, Fivimart, Giant and, the latest, Auchan. What do you think about this fierce reality?

The retail competition is just beginning. The rapid expansion of large retailers like Vingroup and Saigon Co-op in many big cities and provinces and takeover of small brands is a testament to this. Competition is expected to be even fiercer because, after a long time of studying and testing the Vietnamese market, foreigners have gradually captured the tastes and habits of Vietnamese consumers, thus giving suitable business strategies and expectations and readily competing with Vietnamese businesses. On the one hand, foreign retailers with modern, advanced and proven models in the world and financial potential have higher competitive advantages over Vietnam in trade center development. On the other hand, Vietnamese firms are showing strength in broad convenience stores.

Therefore, the success story of a retailer probably lies in its business strategy and is integrated with technology to match modern consumer habits. Nor does it eliminate the integration of retail ecosystems or combine domestic and foreign firms to diversify development and utilize strengths of both sides to deliver more experience, good products and affordable prices for consumers.

Thank you very much!